Maine to Impose Sales and Use Tax on Leases; Limited Refunds Available

Unlike most states, Maine taxes lessors on their purchase of tangible personal property for lease or rental, but generally does not tax lease and rental payments.¹ Starting January 1, 2025, however, Maine will join the vast majority of states by imposing sales and use tax on the lease and rental of tangible personal property.

The change was enacted as Part H of Governor Janet Mills’ supplemental budget (P.L. 2023, c. 643) and in an identical standalone bill (P.L. 2023, c. 673), both of which the governor signed into law in late April 2024.

Sales or Use Tax Refunds

For refunds, lessors should mark their calendars for Q1 2027: Refunds will be available to qualified lessors who paid Maine sales or use tax on their purchase of tangible personal property for lease or rental—with a number of important limitations:

1. Maine sales or use tax must have been paid on “qualifying lease or rental property” on or after January 1, 2023 and before January 1, 2025.
2. The “qualifying lease or rental property” must be part of a taxable rental transaction on or after January 1, 2025, and the lessor must have collected and remitted Maine tax on the transaction.
3. The amount of the refund is limited to the amount of Maine sales or use tax collected and remitted by the lessor from the lease or rental of the qualifying lease or rental property on or after January 1, 2025 and before January 1, 2027.
4. Refund claims can only be filed during a three-month window starting January 1, 2027 and ending March 31, 2027. Lessors should keep an eye on their calendars to ensure they don’t miss the short window for refund claims that starts two years from now.

Details of the New Tax

• “Lease or rental” is defined as “any transfer or possession or control of tangible personal property for a fixed or indeterminate term for consideration,” including future options to purchase or extend the lease or rental, subleases, and subrentals.
  • The definition excludes equipment rented with an operator necessary for the property to performed as designed and who does more than maintain, inspect, or set up the property.
  • The definition also excludes enumerated transactions that are already taxable: leases in lieu of purchase; transfer of possession or control under a security agreement or deferred payment plan that requires the transfer of title on completion of required payments; and leases or rentals that are subject to Maine Service Provider Tax (e.g., rental of video media and equipment, rental of furniture or audio media equipment pursuant to a rental-purchase agreement).
• Lessors qualify for the sale for resale exemption. A sale, lease, or rental of tangible personal property to a lessor with a Maine resale certificate is an exempt sale for resale if purchased for lease or rental.
• New sourcing rules for leased property. In general, a non-periodic rental payment or the first of recurring periodic lease payments is sourced in the same way as a sale of tangible personal property, under 36 M.R.S. § 1819(2).
  • Second and subsequent periodic lease payments are sourced to the “primary property location,” defined as the address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business.
  • Note that the primary property location does not change if the property is intermittently used at a different location. The legislation includes separate sourcing rules for leased or rented transportation equipment and for motor vehicles, trailers, semitrailers, truck campers, and aircraft.

For questions about this sales tax change, or any other state and local tax concern, please contact Olga Goldberg or Jonathan Block.

¹There two significant exceptions to this rule: (1) leases deemed by Maine Revenue Services to be in lieu of sale, and (2) rentals and leases of automobiles and light trucks and vans.